Tax reform: Steps to implementation

“Lobbyists are in many cases expert technicians and capable of explaining complex and difficult subjects in a clear, understandable fashion.” – John F. Kennedy

I once told a new acquaintance that I was a lobbyist, and he looked at me like I was the devil. Really. So, I greatly appreciate President Kennedy’s complement as generic as it might be. And in the case of tax reform, I wish it might be true. Frankly, finding anyone who knows the answers would make me happy. What am I talking about?

As you might have followed in the news, a comprehensive tax reform bill has moved a few steps closer to the president’s desk. It’s possible the bill will be signed before Christmas.

But the president’s signature is not the end of the story.

As we saw in 1986, the signing of the tax reform bill will set off a regulatory and legislative chain of events that will take years to complete.

After signing, the Joint Committee on Taxation will likely issue a “committee report,” or general explanations of the final bill. This will offer insight into how the new bill will affect revenue.

Meanwhile, the IRS will focus on adjusting the withholding tables and other payroll-related documents and instructions. The IRS generally does these adjustments in December but is delaying this process until January while it waits for tax reform discussions to conclude.

Once this is complete, the IRS will develop a priority list of the guidance it will need to generate to implement a new act. The IRS has already started soliciting input, and the AICPA will contribute to that process through its committee/TRP network. The IRS will then issue news releases, notices, instructions, and other forms of informal guidance on those issues it feels are of immediate need of attention.

Not many, but a few items in tax reform have 2017 effective dates; forms and instructions will have to adjust to accommodate this change. However, the bulk of the provisions will have prospective effective dates.

It’s not uncommon for unintended technical glitches to come to light after the final bill is passed. Congress will likely have to pass legislation called “technical corrections” to fix these issues. With such a large bill, this process could take more than a year.

It’s important to note that the House bill had more than 80 grants of authority to the Treasury Department to issue regulations explaining how aspects of the law should be implemented. These regulations are often issued in proposed and temporary format which allows public comment. The AICPA often comments on these regulations. The IRS could make changes to the regulations based on the feedback before they are finalized. This process could also take years.

In the meantime, advocacy groups, such as the AICPA, often push for additional legislative changes in areas that the groups feel don’t work well, are unfair or complex, or that disadvantage the groups’ constituencies.

Also, court cases will start to pop up where taxpayers feel the regulations don’t comport with the law or where the IRS believes taxpayers’ interpretations of the law are wrong. These types of cases could be seen indefinitely.

The path is complicated, but we’ve taken our first steps toward tax reform. Whether or not the overhaul will happen in 2017 remains to be seen, but chances are we’ll be looking at major changes to the tax code soon.

President Kennedy also said “[t]here are risks and costs to action. But they are far less than the long range risks of comfortable inaction.” The AICPA has taken that to heart regarding our tax reform advocacy activities – we’ve been extremely vocal both publicly and behind the scenes.

Be sure to stay up-to-date on tax reform as it unfolds by visiting our Tax Reform Resource Center. We update this page regularly to provide you with information on our advocacy activities, the latest news, and insights and tools you need to stay current.

Ed Karl, CPA, CGMA, Vice President --Taxation, Association of International Professional Accountants